Hunton Retail Law Resource

On October 28, 2019, the US Chamber of Commerce, along with two other business-oriented groups—the National Retail Federation and the Retail Litigation Center, Inc.—filed an amicus brief urging the Ninth Circuit to overrule a $102 million judgment against Wal-Mart.

After a bench trial, US District Judge Lucy Koh awarded the plaintiffs $48 million in statutory penalties under the California Labor Code and $54 million in civil penalties under the Labor Code Private Attorneys General Act of 2004 (PAGA), primarily due to perceived deficiencies in the wage statements that Wal-Mart provided to its employees. Magadia v. Wal-Mart Assocs., Inc., 384 F. Supp. 3d 1058 (N.D. Cal. 2019). Competing interpretations of Labor Code Section 226(a), which governs the required contents of employees’ wage statements, are central to the dispute.

Section 226(a)(9) provides that wage statements must reflect “all applicable hourly rates in effect during the pay period and the corresponding number of hours worked at each hourly rate by the employee.” An important aspect of the dispute hinges on whether Section 226(a)(9) required Wal-Mart to identify hourly rates and hours worked in prior pay periods when it made regular rate adjustment payments in subsequent pay periods to account for quarterly bonuses.

The Chamber argued that Section 226(a)(9) contains no such requirement because the employer’s obligation is limited to providing information about the current pay period covered by the wage statement. As the Chamber put it, “the payments in question represent additional compensation associated with overtime hours worked in earlier pay periods, triggered by Wal-Mart’s payment of variable quarterly incentive awards (i.e., bonuses), which retroactively affects the base pay rate that must be used in calculating overtime pay under California law.” Thus, the Chamber argued, Section 226(a)(9) did not obligate Wal-Mart to identify any hourly rates and hours worked associated with the regular rate adjustment payment.

The Chamber’s argument closely tracks the reasoning in the California Court of Appeal’s partially unpublished decision, Fabio Canales v. Wells Fargo Bank, 23 Cal. App. 5th 1262 (2018) (Canales) (unpublished portion can be accessed here), which issued shortly after Judge Koh determined Wal-Mart’s liability. In Canales, the Court of Appeal held that Section 226(a)(9) only requires the employer to provide applicable hourly rates and the corresponding number of hours worked in effect during the current pay period, not for “additional wages that were earned as overtime pay based on nondiscretionary bonuses being spread over the hours worked during the bonus period.”

Judge Koh was unmoved by Canales for several reasons, including because the relevant portion of the opinion is unpublished and because the law of the case already had been established by the time that Canales issued. Judge Koh also found Canales at odds with the legislative intent to protect employees by requiring more information and disclosure in the wage statement context.

For its part, the Chamber argued it is not clear that the regular rate adjustment payments Wal-Mart made can be reduced to an hourly rate and corresponding number of hours worked.  Indeed, Judge Koh herself recognized the challenges that employers would face in making such determinations. Wal-Mart, 384 F. Supp. 3d at 1102 (“the Court recognizes the difficulty in calculating the OVERTIME/INCT line item”). Moreover, as the Chamber points out, if employers cannot comply with law and otherwise face massive potential penalties, employers will have a strong incentive simply to eliminate their bonus programs giving rise to such exposure. It certainly would be a perverse result if a “pro-employee” interpretation of Section 226(a)(9) resulted in lower pay for employees.

Employers and employees alike await the Ninth Circuit’s decision with anticipation. The case is Roderick Magadia v. Wal-Mart Associates Inc., et al., case number 19-16184, in the US Court of Appeals for the Ninth Circuit.